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China Stocks Gain after Interest Rate Hike

It’s been an eventful week for China stocks. The big events have been bad, or looked bad at first glance, but the gateway Hong Kong stock market posted a respectable gain. The picture could clear up a bit Saturday when China releases eagerly awaited inflation figures for June.

For the week, the blue-chip Hang Seng Index rose 1.5%, 328 points, to 22,726. The index of Chinese stocks increased 1.4%, 179 points, to 12,726. But weak turnover, especially at the end of the week, indicated investors were not moving ahead with much enthusiasm.

The first big event of the week for China stocks was the sale of large stakes in Chinese banks CCB and Bank of China by Singapore state investment arm Temasek. The sale on Wednesday pushed the market lower. However, Eric Yuen, head of research at Guoco Capital, said the sale attracted good buying, which was a sign of renewed confidence.

Later in the same day China increased interest rates for the third time this year. That was part of an inflation-fighting tightening of the economy that has spooked investors for months. But the Hong Kong market posted gains the last two days of the week as some analysts asserted there probably would be no more interest rate hikes.

The June inflation figure due Saturday will hit 6.2%, according to CCB International. If it’s not significantly more than that, the story that interest rate hikes are at an end will remain intact.

Another important statistic will be China’s second quarter GDP, which will be released next Wednesday. CCB International expects a moderate decline to 9.4% to 9.5%. That would ease fears of a hard landing in China and add fuel to a rally that has been building in spurts the last several weeks. End

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For a list of Chinese companies sold in the U.S. and information on each company go to

http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN

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